CT budget again faces red ink as federal grants, gaming revenues shrink

Despite a small bump upward in state tax receipts, new cracks in state finances surfaced Monday that could contribute to a budget deficit forecast by week’s end.

A joint report by nonpartisan analysts and by Gov. Dannel P. Malloy’s administration projects total state revenues will fall about $59 million below the level built into this year’s budget, less than 1 percent of the general fund. Projected losses in federal grants and gaming revenues more than offset about $10 million in growth in this year’s tax receipts.

This is a photo of Benjamin Barnes, Gov. Dannel P. Malloy's budget director.

File photo / CTMIRROR.ORG

Budget director Benjamin Barnes. (File photo)

That modest decline in revenues follows last week’s warning by nonpartisan analysts of larger concerns on the spending side of the budget, involving more than $80 million in potential cost-overruns.

And while Monday’s consensus report from the legislature’s Office of Fiscal Analysis and the administration’s Office of Policy and Management increased expectations for tax receipts slightly this year, it lowered them by $52 million in the next budget, where a large deficit already exists. The latest numbers push the projected deficit for 2015-16 beyond $1.42 billion.

“This is an early projection for this fiscal year, and it is appropriate for us to be cautious,” Benjamin Barnes, Gov. Dannel P. Malloy’s budget director, said Monday. “We all hope that an acceleration of economic growth will raise revenue beyond our current forecast.  This estimated revenue shortfall is just 0.3 percent of the state budget.”

Modest increases in this year’s projected receipts from sales and corporation taxes were more than offset by drops in revenues from tribal casinos, lottery sales and federal Medicaid payments.

The state has been slow to launch certain programs designed to maximize Medicaid reimbursement. Federal officials also have chosen to award only partial reimbursement – rather than 100 percent of state costs – for health care services provided to low-income adults.

Both the Office of Fiscal Analysis and the governor’s budget staff must submit budget projections to the legislature before the weekend. Those must be included in their respective “Fiscal Accountability” reports – detailed annual assessments of short-and long-term trends in state finances.

Overruns in five sectors

Legislative analysts last week reported more than $83 million in “deficiencies,” or potential cost overruns, in five areas.

Nearly half of the deficiencies, about $40 million, are in the Department of Social Services.

Another $27 million involve health care for state employees and retirees. Comptroller Kevin Lembo warned last May that a shortfall in this area was likely because of a projected surge in retirements among state prison guards.

The Malloy administration insisted two weeks ago there wasn’t sufficient evidence to report any deficiencies – the first time in at least nine years an administration had made that claim this far into the fiscal year. The Democratic governor’s Republican critics called it extreme political spin to hide the state’s budget problems until after the gubernatorial election.

Perhaps the bigger problem for Malloy in Monday’s report were new, modestly lower estimates for next year’s receipts for the income and gasoline taxes and for a levy on hospitals and nursing homes.

Despite a projected increase in sales tax collections, those revised estimates were enough to bring down overall revenue projections by $52 million for the next budget, which nonpartisan analysts say was already facing a built-in hole of $1.37 billion.

The administration and legislative analysts will issue one more revenue projection – on Jan. 15 – before Malloy must submit his next two-year budget proposal to the General Assembly. That is due on Feb. 4.

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